Debt counselling, a term that has gained familiarity among many, holds significant importance in the current South African financial landscape. Its inception, in 2007, by the National Credit Act Of South Africa was a proactive step aimed at providing assistance to individuals within the country. Acting as a rehabilitation tool, debt counselling offers a ray of hope for those burdened with overwhelming debt.

How Does Debt Counselling Work? 

Debt counselling is offered as a service by debt counsellors. A registered debt counsellor will formally negotiate with your credit providers with the objective of reducing your monthly instalments and interest rates to a more manageable level. This restructuring of your debt aims to create a simple payment plan that aligns with your financial capacity. 

In order to qualify for debt counselling, consumers who are classified as over-indebted can be assisted. This implies that your current debt repayments and living expenses surpass your net income. By entering into the debt counselling process, you gain the additional advantage of reduced instalments and interest rates, which facilitates monthly savings for the consumer. The benefit of the reduced instalments frees up cash flow on a monthly basis. This results in a position whereby your salary is sufficient to cover all costs, including debt repayments.  

The Benefits Of Debt Counselling

Debt counselling offers consumers a range of benefits. Firstly, it enables consumers to enjoy reduced monthly instalments and interest rates, thus relieving their financial burden they face. Moreover, debt counselling provides the consumers with legal protection. This safeguards them from potential judgements or court orders issued by credit providers or collection agencies. 

Another notable advantage is the convenience of a single monthly payment. This enables consumers to consolidate their payments into one simplified payment, streamlining their financial obligations towards their credit providers. This ensures the funds paid by the consumer are efficiently distributed among their credit providers each month. Additionally, this ensures a more manageable and structured approach towards their debt repayments.

The above benefits result in much needed stress-relief and a regain in control of personal finances. The mental and physical effects of debt can be overwhelming. Debt counselling aims to resolve these and empower the consumer. 

How Does Debt Counselling Affect Your Credit Report? 

One of the key conditions of debt counselling is consumers do not have access to credit facilities during the process. This condition serves with a crucial purpose: to allow individuals to focus on their current financial obligations. With this temporary limit to credit facilities, consumers can prioritise their management and repayments of their current debt. 

Additionally, as a part of the debt counselling process, a notice is placed on the consumer credit report with all bureaus. This measure acts as a protective measure to prevent additional credit being extended to the consumer under the process. Importantly, due to the vast reduction in monthly instalments, the consumer no longer needs to rely on loans or credit facilities to make it through the month. 

How Long Does The Flag Remain On Your Credit Report? 

During the debt counselling process, the debt counselling flag will remain on the consumers credit record. This flag serves as an indicator to credit providers and bureaus that the consumer is currently receiving debt rehabilitation. This flag can remain on the consumer’s credit record until such a time where the consumer has settled all their debt and has been issued a clearance certificate. All debts, besides a home loan agreement, need to be settled under the process.

Once the consumer has successfully completed the debt counselling program, the necessary notifications are sent to all credit bureaus and the National Credit Regulator. Consequently, the debt counselling flag is removed from your credit report. This process may take several weeks. This removal of the flag signifies that the consumer has successfully completed the debt counselling program and fulfilled their payment obligations towards their credit providers. As a result of this, the consumer will once again be able to apply for credit or acquire new assets. 

How Can You Remove The Debt Counselling Flag? 

Removing the debt counselling flag from a consumer’s credit report can be achieved through various avenues. The first method involves being declared  “no longer over-indebted”, which requires a lawyer to initiate a legal process. This involves obtaining a court order or an order from the National Consumer Tribunal (NCT) to declare the individual’s improved affordability and financial status.

If the consumer is currently under debt counselling and their original debt counsellor is no longer available or operating; the consumer does have the option to approach a new debt counsellor for assistance and guidance. The new debt counsellor can guide the consumer through the necessary steps in order to complete the process and obtain a clearance certificate. 

In summary, debt counselling offers several great benefits to consumers. It provides the advantage of reduced monthly instalments and interest rates, enabling individuals to save additional funds each month. This financial relief allows them to allocate resources towards their family’s needs and future goals.

Additionally, debt counselling provides legal protection to consumers. This protection shields them from the persistent calls and demands of credit providers. This alleviates the stress and anxiety associated with debt collection. By engaging in debt counselling, consumers can experience a sense of peace and stability as they navigate their path to financial recovery.

Overall, debt counselling serves as a valuable tool for individuals facing overwhelming debt repayments. With the offering of tangible solutions that promote financial well-being and the opportunity to regain control over their financial lives.